A health savings account (HSA) and a flexible savings account (FSA) are both tax-advantaged savings accounts that help you pay for out-of-pocket medical expenses. To contribute to an HSA, you must be enrolled in a high-deductible health plan. To contribute to an FSA, you can have any type of health plan but your employer must offer an FSA as a benefit. Here’s a closer look at the similarities and differences between FSAs and HSAs and how to choose between them.
HSA and FSA, Explained
A health savings account (HSA) is designed to help individuals with high-deductible health plans (HDHPs) save for medical expenses. Contributions to an HSA are tax-deductible (or deducted from your paycheck pretax), and the funds can be used for a wide range of qualified medical expenses. HSAs also offer investment options and grow tax-free. In addition, withdrawals for qualified expenses are tax-free.
In 2024, a health plan is considered an HDHP if it has a minimum deductible of $1,600 for individual plans and $3,200 for family coverage.
A flexible spending account (FSA) is a benefit offered by employers that allows employees to set aside pretax dollars for eligible healthcare expenses. Unlike HSAs, FSAs do not require an HDHP. However, FSAs typically have a “use-it-or-lose-it” rule, meaning that any unused funds at the end of the plan year are forfeited unless your employer offers a grace period or a certain amount to roll over.
If you leave your job, you lose your FSA unless you’re eligible for FSA continuation through COBRA.
Differences Between HSA and FSA
Even when you have health insurance, you may run into medical expenses that your plan doesn’t cover, such as copays, eyeglasses, dental expenses, medications, diagnostic tests, and hospital fees. Both HSAs and FSAs allow you to set aside pretax money to cover these costs. But there are some key differences between them. Here’s how these two types of savings accounts compare at a glance.
| Feature | HSA | FSA |
|---|---|---|
| Eligibility | Must have a high-deductible health plan | No specific health plan requirement |
| Ownership | Account owned by the individual | Account owned by the employer |
| Contribution Limits | $4,150 for individuals, $8,300 for families (2024) | $3,200 per year (2024) |
| Funds Rollover | Unused funds roll over year to year | Generally, “use-it-or-lose-it” policy |
| Portability | Remains with the individual if they change jobs | Typically not portable |
| Investment Options | Can be invested in stocks, bonds, and mutual funds | No investment options |
| Tax Advantages | Contributions and earnings aren’t taxed; distributions are tax-free if used for eligible medical expenses. | Contributions are pretax; distributions are tax-free and can only be used for eligible medical expenses. |
| Contribution Changes | Can change contribution amounts anytime | Contribution amount is typically set at the beginning of the year |
| Access to Funds | Funds are available as they are deposited | Full annual election amount available from the start of the year |
Similarities Between HSA and FSA
Despite their differences, HSAs and FSAs share several similarities:
• Funds from either type of account can be used for qualified medical expenses.
• With both accounts, you can save significantly on medical expenses due to tax advantages.
• Employers are allowed to contribute to both HSAs and FSAs (though this is not common with FSAs).
• You can access funds immediately with either type of account. With an FSA, however, you’ll have access to full elected contribution at the start of the year.
Recommended: HSA vs HRA: Main Differences and Which Is Right for You
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Can You Have an HSA and FSA at the Same Time?
Generally, no. However, there is one exception: If you have a limited-purpose FSA (LPFSA), which only covers dental and vision expenses, you can contribute to both an HSA and an LPFSA. This allows you to put more pretax dollars aside for your healthcare expenses than you could with an HSA alone.
Just keep in mind that you can’t “double dip,” meaning you cannot get reimbursed twice for the same expense — you must decide which account you want to use for reimbursement.
Recommended: HSA vs. HMO: What’s the Difference?
How Do You Choose Between an HSA and FSA?
Choosing between an HSA and FSA depends on your healthcare needs, financial situation, and employment status.
Scenarios When You Should Consider an HSA
• You have a high-deductible health plan. If you have an HDHP, you are eligible for an HSA. The tax advantages and ability to save for future healthcare expenses can make opening an HSA a smart choice.
• You’re interested in long-term savings. HSAs allow you to roll over unused funds year to year, making them ideal for long-term healthcare savings. And at age 65, you can treat an HSA like a traditional 401(k) or IRA — you can withdraw funds for any reason, though you will pay taxes on any funds not used for qualified medical expenses.
• You want to grow your healthcare savings. HSAs offer investment options like stocks, bonds, and mutual funds.
• You want to be able to take your healthcare savings with you if you leave your job. HSAs are portable and remain with you even if you change jobs, providing consistent coverage regardless of employment status.
Recommended: 15 Easy Ways to Save Money
Scenarios When You Should Consider an FSA
• You don’t have (or want to enroll in) an HDHP. FSAs do not require a high-deductible health plan, making them accessible regardless of current health insurance.
• You have fairly predictable healthcare costs. If you’re able to anticipate regular healthcare expenses each year, an FSA can help you save money by using pretax dollars for these predictable costs. If you over-contribute, however, you forfeit any unused balance (unless your employer allows a grade period or a certain amount to roll over).
• Your employer offers FSA contributions. Some employers offer contributions to FSAs, providing additional savings and making FSAs a valuable benefit.
• You want to have immediate access to your healthcare savings. FSAs provide immediate access to the full annual contribution amount at the beginning of the year, which can be beneficial for upfront medical expenses.
The Takeaway
Both HSAs and FSAs offer valuable tax advantages and can help you manage healthcare costs, but they cater to different needs and situations.
If you have a high-deductible health plan and want long-term savings with investment opportunities, an HSA can be a great choice. On the other hand, if you don’t have a high-deductible health plan and your employer offers an FSA, you’ll likely want to take advantage of this benefit. An FSA can help you save for (and save money on) healthcare expenses in the coming year.
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FAQ
Is it better to have an HSA or FSA?
It depends on your healthcare plan and employment situation. A health savings account (HSA) can be a good fit if you have a high-deductible health plan (HDHP), since it offers higher contribution limits and allows you to carry funds forward. An FSA can work well if your employer offers this benefit, you do not have an HDHP, and you have predictable healthcare expenses (since these plans are often “use-it-or-lose-it”).
Is it good to have both an HSA and FSA?
Generally, you cannot contribute to or spend from a health savings account (HSA) and a flexible spending account (FSA) simultaneously, as both accounts are designed for medical expenses and have overlapping benefits.
However, there is one exception: You can have an HSA and a limited-purpose FSA (LPFSA) at the same time. An LPFSA specifically covers dental and vision expenses. This combination can be beneficial if you have significant dental and vision expenses in addition to regular medical costs, providing comprehensive coverage and enhanced tax advantages.
What happens if I switch from an HSA to an FSA?
If you switch from a health savings account (HSA) to a flexible savings account (FSA), you can no longer contribute to your HSA once your FSA becomes active. However, you still own the HSA and can use the remaining HSA funds for qualified medical expenses. In addition, the funds in your HSA will continue to grow tax-free.
Can I have an HSA if my wife has an FSA?
If your wife’s flexible savings account (FSA) is a general-purpose FSA, which covers a range of medical expenses, you cannot contribute to a health savings account (HSA). However, if her FSA is a limited-purpose FSA (LPFSA), which only covers dental and vision expenses, you can contribute to your HSA.
It’s important to review the specific rules and eligibility criteria for both accounts and coordinate with your spouse to optimize your tax savings and healthcare benefits.
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